Column by Paul Hein.
Exclusive to STR
Let’s look at a familiar aphorism: If a tree falls in the forest, and no one hears it, does it make a noise? Now let’s modify it: If an obligation is settled with an IOU, which is never to be paid, is there a debt?
In the first instance, we are asked whether there is a sound if no one hears it. In the second, if there is a debt if no one pays it. The first question is academic; the second of tremendous importance.
Our “monetary” system, which, incidentally, does not involve the use of money--a tangible means of exchange--provides no means of paying debts. True, you send a check each month to the credit card company, but you do not pay the debt--you merely settle it. That is because your check transfers bank liabilities from your account to your creditor's account. Bank deposits--checkbook “money”--constitute the liabilities of commercial banks, according to the Chicago Fed’s informative booklet, “Modern Money Mechanics.” How can your “deposit” into your bank account be regarded as a liability of the bank? Because the bank, which now owns the deposit, is “liable” to return it to you on demand.
Well, then, your creditors have merely to take your check to the bank, and demand that it honor its liabilities, right? With what will the bank honor its liability? Why with Federal Reserve Notes, of course. And what are they? According to law, they are “obligations of the United States.” So your “payment” has now gone from being a liability of the bank, to being an obligation of the United States. And will the United States honor its “obligation”?
Years ago, I sent a dollar bill to the Secretary of the Treasury with a note reminding him that the bill was an “obligation” of the United States, asking him to honor that obligation. He responded by returning my note, saying that his only obligation was to do so. Try it yourself if you need convincing that our “monetary” system is a gigantic swindle and con game.
So: If there is no actual means of paying debts, does the term “debt” mean anything? Does hunger mean anything if there is no food? Does thirst mean anything if there is no drink? Well yes, because food and drink are available to slake your appetite. But money? It doesn’t exist, having been replaced by promises. Very handy for the issuer of those promises! Of course, you, or anyone, could issue “liabilities” or “obligations” or, in other words, IOUs, to settle your debts. However, if you knew that you were not going to honor those IOUs, you’d be committing a crime. Fortunately for Uncle, he has, by virtue of the authority he has given himself, designated his own non-redeemable IOUs legal to tender, so if you have some of them, you needn’t worry about redemption--you can just go out and spend them--knowing them to be irredeemable--in lieu of money, with no fear of arrest and prosecution.
We are frequently warned that government spending is out of control, and will lead to the bankruptcy of the government unless the government can pay down its “debt.” That would be a disaster, however, even were it possible.
What passes for money today is not mined, or extracted from the earth. It is created by the banks with a few keystrokes. Obviously, the banks cannot run out of keystrokes, and the government, which the banks fund, cannot face bankruptcy as long as the banks continue to lend. The problem is not bankruptcy, but such increases in the amount of “money” in circulation--inflation--that its buying power shrinks to virtually nothing, as we’ve most recently seen in Zimbabwe. Then the whole con collapses.
Until that time, however, non-payment of the government’s debt is highly desirable for the banks and the government. Indeed, in my opinion, it was never contemplated that the government should pay its debts. The banks, after all, loaned the government “money” which they created at no cost to themselves. As long as the borrowing continues, interest payments will continue as well, running into the billions each month. Why would the banks want that to stop? And since the amount borrowed is always less than the amount to be repaid (thanks to interest), all the money in existence would not suffice to pay the debt, which is permanent and growing. In other words, if the government could, somehow, settle its debts, it would require every dollar in existence, and then the interest would still be owed. The system is designed to make indebtedness permanent, and profitable.
The extent to which you will suffer in the forthcoming economic collapse is directly proportional to the amount of “money” you’re holding. Tender it—legally--for something tangible while you still can.